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EBRD publishes report on callable capital

EBRD publishes report on recent review of callable capital
The report shows the Bank's financial strength and prudent capital adequacy policies
The exercise is part of the Bank's work under the independent review of capital adequacy frameworks sponsored by the G20.

The European Bank for Reconstruction and Development (EBRD) has published a report summarizing the results of a review it undertook with several of its shareholders, who together hold a large majority of the Bank's callable capital subscriptions.

This review is part of efforts by the EBRD and other multilateral development banks (MDBs) to implement the recommendations of the G20-sponsored independent review of capital adequacy frameworks.

Similar exercises have also been undertaken by the African Development Bank, the Asian Development Bank, the Inter-American Development Bank and the International Bank for Reconstruction and Development, which publish similar reports.

The EBRD report covered three areas of work:

A review of the Agreement Establishing the EBRD relating to callable capital, which focused on the legal considerations and mechanisms relating to the call on callable capital shares.
An illustrative “reverse stress test” that examined the extreme hypothetical scenarios that would give rise to the financial circumstances that could trigger a capital call.
A summary of shareholder views from many member countries describing their legal, accounting and budgetary processes for responding to a call for capital due.

Several important conclusions were drawn from the review. Shareholders consider subscriptions to repayable capital as legally binding commitments. Clarifications of the process by shareholders also demonstrate the strength of their obligations and a well-defined process for responding to a call for due capital.

Through pre-allocation of funds or expedited process mechanisms, many shareholders could respond to an appeal at very short notice, while others expect to be able to make their payments within several months. The reverse stress test highlights the Bank's considerable financial strength and prudent capital adequacy policies, illustrating that a call on EBRD callable capital is an extremely unlikely event. Ultimately, the decision to proceed with an appeal rests with the Bank's Board of Directors.

The EBRD, together with other MDBs, continues to collaborate with credit rating agencies (CRAs) to review and improve the credit rating criteria used to evaluate multilateral lending institutions. The additional information and analysis contained in this report provides greater clarity and transparency to callable capital, which may better inform rating agencies' assessment of the value of callable capital.

Sources

1/ https://Google.com/

2/ https://www.ebrd.com/news/2024/ebrd-publishes-a-report-on-callable-capital.html

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